According To The Textbook, Each Business Transaction Must Ha

According To The Textbook Each Business Transaction Must Have A Du

According to the textbook, "Each business transaction must have a dual effect on the accounting equation" (Kimmel, P. D., & Weygandt, J. J., 2017). The accounting equation is Assets = Liability + Stockholders' Equity, and it must always remain balanced. Therefore, every transaction impacting the company's finances must have a corresponding dual effect to maintain this balance. The textbook states, "If an individual asset is increased, there must be a corresponding: Decrease in another asset, Increase in a specific liability, or increase in stockholders' equity" (Kimmel & Weygandt, 2017). For example, if a company purchases supplies worth $5,000 with cash, there will be an increase in supplies (asset) and a decrease in cash (asset), which balances the equation and keeps it in equilibrium. This dual effect principle ensures that the fundamental accounting equation remains consistent after each transaction.

Class and Dr. Schweitzer: Understanding Current and Long-term Liabilities

Current assets are items that are acquired and used in the daily operations of a business, typically converted into cash within a year. These include cash, accounts receivable, inventory, and other short-term assets essential for routine business operations. Current liabilities are obligations due within the same one-year period and include accounts payable, wages payable, and short-term loans. The position of current assets and liabilities is usually presented at the top of the balance sheet, emphasizing their importance in assessing short-term financial health.

In contrast, long-term liabilities involve debt obligations that extend beyond one year, such as mortgages, long-term loans, leases, and other financing arrangements that take years to settle. These liabilities are crucial for financing long-term investments and expansion but differ significantly from current liabilities in their repayment timelines. Aberdeen Advisors (2017) explains that understanding the distinctions between current liabilities and long-term liabilities is vital for accurate financial analysis and decision-making. Proper classification ensures clarity in financial statements and helps stakeholders evaluate a company's liquidity and solvency effectively.

Overall, the dual effect principle is fundamental in accounting because it sustains the balance of the accounting equation. Proper understanding of current and long-term liabilities enables accurate financial reporting and strategic planning. Accurate classification and recording of business transactions, as outlined by Kimmel and Weygandt and further explained by Aberdeen Advisors, underpin reliable financial statements that are essential for investors, management, and regulators.

References

• Kimmel, P. D., & Weygandt, J. J. (2017). Financial Accounting: Tools for Business Decision Making (8th ed.). John Wiley & Sons.
• Advisors, A. (2017). Understanding the Difference Between Current & Long-Term Liabilities. Aberdeen Advisors.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial Accounting (11th ed.). Wiley.
• Gibson, C. H. (2013). Financial Reporting & Analysis (13th ed.). Cengage Learning.
• Holmes, S. J., & Hughes, J. D. (2020). Fundamentals of Financial Management (15th ed.). McGraw-Hill.
• FASB. (2023). Accounting Standards Codification. Financial Accounting Standards Board.
• Philips, G. M., & Libby, R. (2018). Financial Accounting, 5th Edition. McGraw-Hill Education.
• Barth, M. E., & Landsman, W. R. (2010). How Did Financial Reporting and Auditing Develop? Journal of Accounting and Economics, 50(2-3), 208-225.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis (13th ed.). Wiley.
• Investopedia. (2023). Current Liabilities vs. Long-Term Liabilities. Retrieved from https://www.investopedia.com